Wednesday, August 31, 2005

The Supreme Court was careful not to decide whether or not Merck’s activities qualified for Section 271(e)(1)’s safe harbor. Rather, the Court held that the Federal Circuit applied the wrong standard in reviewing Merck’s activities. According to the Court, the central inquiry in applying Section 271(e)(1) is whether or not use of the RGD peptide was “reasonably related to the development and submission of information” to the FDA. The Federal Circuit erred, the Court suggests, by focusing too much on the distinction between pre-clinical and clinical research. As the Court pointed out, the language of 271(e)(1) does not distinguish between clinical and pre-clinical research. Furthermore, because the FDA requires both clinical and pre-clinical research during the course of approving a drug, 271(e)(1) must be read to permit both kinds of research.[LBE note: recall the Supreme Court did not find that the CAFC had applied a clinical/preclinical distinction.]

The Court held that the appropriate standard focuses on the extent to which Merck’s research was “reasonably related” to an FDA filing, which the Court delineated with a two-step test: “As least where a drugmaker has a reasonable basis for believing that a patented compound may … produce a particular physiological effect, and uses the compound in research that, if successful, would be appropriate to include in a submission to the FDA, that use is ‘reasonably related’ to the ‘development and submission of information under … Federal law.’”

[LBE note: observe that the Supreme Court did not comment upon the word "solely" in the text of 271(e)(1). HOWEVER, if Integra prevails on remand, there is a way to implicitly bring the concept of solely back into the test.]

In remanding the case for further proceedings, the Court left open a number of questions. First, the Court’s standard suggests a fairly bright line between when a researcher does and does not have “a reasonable basis for believing that a patented compound” will work. But what level of confidence does a researcher require to satisfy this standard? Would an educated guess or conjecture suffice? There is a lot at stake in arriving at the correct answer.

Second, although dicta suggest a wide berth allowing uses of patented compounds studies which, “if successful, would be appropriate to include in a submission to the FDA,” it does not discuss treatment of studies that have overlapping applications, such as the development of derivative compounds. Indeed, although the Court exhaustively discusses 271(e)(1)’s “reasonably related” language, it does not discuss the import of the word “solely” in 271(e)(1)’s proscription that the use of patented inventions must be “… solely for uses reasonably related to the development and submission of information” to the FDA.

Finally, the Court’s focus on “patented compounds,” despite 271(e)(1)’s express reference to “patented invention[s],” casts uncertainty as to whether the Court anticipates a separate “reasonably related” standard for inventions that are not compounds. This concern is highlighted in the case of so-called “research tools,” which are used in the discovery and/or development of a compound, but will not be referenced in any FDA application. Although the Court explicitly states that it “need not – and do[es] not – express a view about whether, or to what extent, §271(e)(1) exempts form infringement the use of ‘research tools’ in the development of information for regulatory purposes,” there is nothing in the text of 271(e)(1) or the Court’s opinion that rationalizes treating research tools any differently than “patented compounds” or any other “patented invention.” Consequently, the decision is less than sanguine news for licensors of research tools who sought a clear statement exempting their use from 271(e)(1)’s ambit.

[LBE note: the claimed invention of a research tool (for research using the claimed invention ONLY as a research tool) would never be submitted to the FDA, nor be information desired or even contemplated by the FDA.]

**

Integra learned that Merck had been sponsoring the research from scientific papers written by Scripps scientists. Although Integra did not object to the use of its patented technology for research purposes only (and indeed had previously provided these peptides to Scripps scientists [LBE query: after the Supreme Court decision, how likely are the Integras of the world to share samples?]), Integra took the position that sponsored research that was part of Merck's commercial drug development program required a license.[Mauricio A. Flores and Cathryn Campbell, Legal Times, p. 66, June 20, 2005]

Of the text: Properly construed, section 271(e)(1) leaves adequate space for experimentation and failure on the road to regulatory approval: At least where a drugmaker has a reasonable basis for believing that a patented compound may work, through a particular biological process, to produce a particular physiological effect, and uses the compound in research that, if successful,would be appropriate to include in a submission to the FDA, that use is "reasonably related" to the "development and submission of information under . . . Federal law."

The net effect of the Supreme Court decision will be that patent holders will have to tightly control research that establishes a reasonable basis for believing that a patented compound may work, through a particular biological process, to produce a particular physiological effect.

UPDATE on Merck v. Integra, 3 October 2005

One wonders how much of the following philosophy was evident in the Supreme Court's decision.

. ''I think an approach to interpreting statutes, or interpreting the Constitution," Breyer said, ''that certainly looks to text, certainly looks to history, certainly looks to tradition and precedent -- but that also emphasizes heavily the purpose of this particular provision and the consequences as viewed in terms of the purposes, is more likely to get at what this law is about, what area of human life it is seeking to affect and how. That's what I think the essence of law is."

''I don't like the notion of there being two things, the law and life," Breyer said. ''I prefer a metaphor where law is part of life, law grows out of life, law is rules, practices, standards, approaches, formal and less formal behavior that people in a community create so they can live together fruitfully. That's what law is."

In the particular case of Merck v. Integra, it is doubtful that the Congress in 1984 contemplated the type of activity being done by Merck KGaA. It is almost certain that they did not contemplate patents on "research tools."

-->With good timing, a determined and well-budgeted infringer/opposer can make the patentee suffer through the panoply of proceedings that the Reform bill permits, and in some respects, requires. We are to be assured, though, that this proposed "Reform" legislation serves to "improve" the system, to "reduce" costs and inefficiencies of litigation, and to "modernize" the Patent Office, all of which is funded by fees charged to inventors.Posted by Stephen at August 29, 2005 03:15 PM at patent baristas (guest post by C. Lee Thomason)

LBE note: As an aside, nobody is assuring us that patent fee diversion will end. Thus, all of the new stuff will be only "partly" funded, and who knows how it will get done? The issue of increased burden on the patentee because of oppositions was discussed in Lawrence B. Ebert, "Patent Reform 2005: Sound and Fury Signifying What?", New Jersey Law Journal, July 18, 2005.

Tuesday, August 30, 2005

-->But the bill includes a drastic reform no one is talking about that promises to create far more problems than it solves: Tucked away among other provisions is a hopelessly convoluted proposal to redefine what constitutes "prior art," the body of pre-existing public knowledge for which patents are unavailable. This scarcely discussed redefinition of prior art will have significant and perhaps unintended consequences, because it could allow someone to copy an old idea already in the public domain and claim it exclusively as their own, promoting imitation over innovation.

Existing law defines prior art not just as earlier patents, but also ideas made part of the public domain through public use, knowledge or sale, regardless of whether the underlying operation, algorithm or manufacturing process is also understood. Early computer systems and software programs sold or used publicly are prior art, regardless of whether they were patented or their underlying source code ever made public.

The proposed redefinition would change that and require prior art to meet a perplexing new "reasonably and effectively accessible" standard. As written, the bill would allow someone to patent an old idea unless someone skilled in the field could both "gain access to the subject matter" and "comprehend" its content "without undue efforts."

This proposed "clarification" of prior art is about as clear as mud. It breeds uncertainty and, many will argue, drastically narrows the body of prior art. Software industries, in particular, will be harmed by the proposed change because so much of the prior art in software exists outside the patent system.

Take, for example, the 1996 patent infringement case filed by Quantel Ltd. against Adobe Systems, Inc., accusing Adobe Photoshop's "paint" feature of infringement. A jury ultimately found Quantel's patents invalid because they covered basic software techniques developed in 1977 by Alvy Ray Smith, a computer graphics pioneer and co-founder of Pixar Animation Studios. Smith had sold his paint system to Ampex in the mid 1970s and briefly described his digital paint systems in "tutorial notes" distributed at conferences in 1978. The source code that implemented Smith's paint systems was not itself readily accessible, yet it is fair to say modern computer graphics evolved, in large part, from Smith's groundbreaking work. Under current law, Smith's Paint system is prior art. Under the proposed patent reform bill, however, Quantel could have argued that Smith' s early contributions were not "reasonably and effectively accessible" and claimed his techniques exclusively as their own.

Unlike virtually every other reform in the current bill, the definition of prior art was never flagged as a source of the patent system's problems. The change does not harmonize U.S. patent laws with other countries, and the redefinition is not necessary as part of a first-to-file system. If it isn't broken, don't fix it. Unintended consequences from this change could stifle, rather than promote, innovation.

Whereas the meaning and contours of existing categories of prior art are well defined by years of case law, courts would be bogged down interpreting this unnecessary revision for years to come. Sure, another section of the bill tries to give back some of what the redefinition takes away, but it doesn't go nearly far enough. The bottom line is that the redefinition rewards imitation, and would be litigated for the next decade to show otherwise.

Patent rights are often analogized to rights in real property. Prior art, in this analogy, is like public land. Congress should not award real property rights to someone staking a claim on public land, nor should it give patent rights to someone staking claim to public ideas.

Monday, August 29, 2005

Within a story about a yet-to-be-released report from the National Academy of Public Administration [NAPA] recommending the USPTO become a government corporation headed by a CEO with strong business experience, one finds dismal news about the problem of fee diversion by Congress:

A bill to let the agency keep its fees -- which amounted to about $800 million over the last 12 years -- was introduced earlier this year. But the future of the measure, H.R. 2791, is in doubt because appropriators are unwilling to forgo their revenue stream, industry officials said.

If fee diversion does not stop, where will the PTO find the money to pay for all the new responsibilities within H.R. 2795, including inequitable conduct and oppositions? No one is addressing this problem, which is the problem which needs to be solved.

Also within the story from govexec.com -->

The American Intellectual Property Law Association (AIPLA) supports incorporating PTO. "We believe that allowing the PTO to function as a government corporation would greatly enhance the ability of the office to retain fee revenues to process their work," AIPLA Director Mike Kirk said.

Historically, PTO has had to remit to federal coffers all of the fees it collects from patent applications. Congress has redirected much of that money to other agencies even as the backlog in processing applications has grown.

The NAPA report endorses the end to such fee diversion. PTO "needs to continue to have access to the fees it collects without fiscal-year limitation so that it may achieve efficiencies with steady stream funding and improve its ability to hire and retain the ... workers critical to its mission," the memo said.

Turnover among patent examiners is high. Most leave the agency within three to five years. With such high attrition, seasoned examiners must be pulled off cases to train new workers, Kirk said.

Discussion of provisional patent applications

A board recently discussed the issue of a complex, expensive provisional application. The initial post:

Anyone else ever drafted or received a bill (for you in-house people) for a provisional application with 100 claims and 25 pages of spec that cost $20K? What about a $30K utility application? both are biotech. Am I just working with the wrong firm?

In a provisional patent application, one is trying to secure written description support for claims in later-filed non-provisional applications. Although one does not have to denominate "claims" in a provisional, it is useful to formulate the disclosure in terms of claims (or text that looks like claims) to ensure that written description for the later claims is clearly present in the provisional.

Whether or not to draft a full set of claims, with detailed dependent claims, at the time of the provisional, may be questioned. If one has such complete knowledge of the invention, one might ask "why not file the non-provisional"? There are long delays in some art units, and getting prosecution started may be advantageous. If there is a good reason to defer filing a non-provisional, perhaps, but the reason needs to justify spending a lot of money early. If those claims are going to change, maybe this is not a good strategy.

All a provisional does is to insulate one from art arising after the provisional filing date (and before the nonprovisional). Apple was indeed slow in filing its provisional, and may pay the price. But that problem was timing, not detail of the provisional. If writing numerous claims slows you down, it may not be worth it.

-->from the board-->

Although it does sound like the cost may have been excessive in this case, I have written many biotech provisionals for at least 20K. We usually try to write provisionals as regular applications, and have seen problems with crappy inherited cases being chewed up and spit out by Examiners. Seventy-five to 100 claims is not unusual in a complex biotech case, but the recent fee increases have hurt some. I don't think 30K is exessive in a complicated biotech case, particularly where there is a lot of data to wade through and little help or guidance from the inventors. I have also written cases which are over 200 pages and have written over 200 claims. The most expensive case I wrote totaled close to 50K. We don't even like to look at a case for less than 10K, and prefer at least 12-15K. But we do listen to the client and give them what they are willing to pay for. But, if their requested limit is too low, we usually pass.

-->Yes, draft your full set of 100 claims. Go nuts. Then (1) put them in a memo to the file regarding future CON apps, (2) collapse all 100 of them into prose form and stick them in the spec so you have support for those CONs later, and (3) choose the "main" invention and file the claims on just that (20-30 claims, no more than 3-5 independents).

It saves money now, and you've got future filings mapped out. Explain it to the client, and you'll look like a hero for mapping out their future strategy and deferring prosecution costs while they work on fleshing out the marketing of the invention. Yes, you spent time drafting all those claims, but the whole invention's mapped out, and future filing costs will be proportionally lowered.

Claus Weyrich, a member of the managing board of Siemens and head of Siemens Corporate Technology: Today we look at innovation more holistically than we once did. We consider not only technologies but also their associated business processes. And that in turn demands determined orientation toward the desires and needs of our customers.

The most important measure for the success of innovation is without doubt success in the market -- in other words, profitability. [But] there are many indicators and success factors that determine the degree to which a company is innovative.

One indicator is human resources. At Siemens we have some 45,000 employees worldwide who work in research and development. The second indicator is strong technology positioning in comparison to the competition, especially in key technologies and pace-setting technologies that create competitive advantages today and in the future. Take for example our Piezo fuel-injection technology, which Siemens VDO Automotive introduced to the market in 2000, creating a technological trend. Our first patent in this area was in 1980.

Another indicator is the number of patents a company files. We have over 48,000 patents worldwide, and we are among the world leaders in granted patents. [LBE note: the number of patents is the third indicator, not the first.]

The fourth indicator of innovative strength is the degree to which we use corporate synergies, such as platform strategies and cross-divisional technologies.

The most important success factor is, of course, a highly developed innovation culture with uncompromising customer orientation, a high level of management attention to innovation activities, and a climate that rewards success and risk-taking. Last but not least is the excellence of our employees.

(...)The primary trend is that innovation is increasingly driven by the market demands. With this in mind, our research and development divisions work closely with marketing and sales people from the business groups and regional units.

An example of innovation that originated at the country level is the TD-SCDMA mobile communication standard that was developed jointly by Siemens and researchers at the Datang Telecom Technology & Industry Group, whose parent company is the China Academy of Telecommunication Technology. Other examples are the multi-biometric card from Siemens India and the new postal automation systems for the U.S. Postal Service.

(...)Another trend is that innovation is being created increasingly in multicultural teams. Innovation requires creative inventors as well as people who can translate ideas into marketable products -- and then make them a success in the market. These teams are globally networked, with each other, with customers, with suppliers and with public research centers.

(...)The excellence of employees is an essential pillar of our success. And excellence is not simply a matter of superior qualifications in the subject area, but also strong personal qualities such as motivation and entrepreneurial thinking. But we also need sound experts, "deep drillers" who are able to solve complex technological problems.

Sunday, August 28, 2005

Single-wall carbon nanotubes were discovered in 1991 by Sumio Iijima of Japan, a researcher for Japanese computer giant, NEC Corporation. In 2004, the company asserted that any company that wants to manufacture or sell carbon nanotubes must first negotiate a license on NEC’s two seminal patents. NEC is expected to license its carbon nanotube patents widely; last year, Japan’s Sumitomo Corporation was the first company to negotiate a license.

IBM also holds an early and fundamental patent on single-wall carbon nanotubes. US Patent No. 5,424,054 has been identified by patent lawyers as one of the ten most important patents that could have an impact on the future development of nanotech. IBM’s patent was licensed to Carbon Nanotechnologies, Inc.

[LBE note: US 5,424,054 is based on an application filed May 21, 1993. It cites only two US patents, none to NEC. To date, it has been cited by 43 US patents. Claim 1 recites: A process for producing hollow carbon fiber having a wall consisting essentially of a single layer of carbon atoms comprising the step of contacting carbon vapor and recovering the fiber product under conditions effective to produce the hollow fiber with cobalt vapor. Claim 1 thus has a significant limitation about carbon vapor. Claim 3 recites: A hollow carbon fiber having a wall consisting essentially of a single layer of carbon atoms. Claim 3 thus has a significant limitation --consisting essentially of-- which forecloses the presence of (catalytic) metal species and forecloses the presence of edge species such as oxygen or hydrogen.

The patent cites none of the prior patents of R.T.K. Baker or research in Boudouard carbon from the 19th century. As to Baker, the references cited by the patent (first page) include only Baker, "Catalytic Growth of Carbon Filaments", Carbon, vol. 27 No. 3, pp. 315-323, 1989 (no month), even though most of Baker's significant work on filamentary carbon (involving CAEM) took place in the 1970's]

Carbon Nanotechnologies Inc. (CNI) is the self-described “pre-eminent world producer” of carbon nanotubes. The Houston, Texas-based company was founded in 2000 by Rice University Nobel Laureate and entrepreneur, Richard Smalley. According to CNI’s president, Bob Gower, the company holds a portfolio of 30 patents related to carbon nanotubes, and about 12 of them give CNI a lock on the nanotube market. In addition, CNI has 70 patent applications pending that include 4,000 claims on nanotube compositions, methods of production and end-use applications. “We expect to be the supplier in this arena,” Gower told ‘The Houston Chronicle’.

Of patenting -->

· To the extent that carbon nanotubes represent an important component in nanotech-related materials, they will affect traditional commodity markets and demands for raw materials. Concerns about ownership and control of carbon nanotubes are especially relevant to the global South.

· ETC Group’s list of top patent assignees (see table 1) of US patents related to carbon nanotubes reveals that ownership of carbon nanotube patents is highly fragmented - there are numerous players in diverse industries.

· There were 140 different primary patent examiners for the 257 patents on nanotubes issued by the US PTO. The lack of uniform handling increases the likelihood that different examiners in different departments reviewed different prior art and this could result in overlapping patent claims.

· ETC Group agrees with analysts who conclude that there currently exists a nanotube patent thicket. A swarm of existing patents, whose claims are often broad, overlapping and conflicting, means that researchers hoping to develop new technology based on carbon nanotubes must first negotiate licenses from multiple patent owners.

· Lux Research, a nanotechnology consulting firm, recently conducted its own study of the IP nanotech landscape. The Lux report concludes that “nanotube patents look messy in electronics,” but they found that carbon nanotube patents are not a problem in all areas (especially energy, healthcare and cosmetics).

· Since patent databases do not always reveal the current ownership of patents or disclose assignees, our list of leading carbon nanotube patent assignees is not a true reflection of a company or institution’s dominant position. CNI claims that it has an exceptional IP position in all the process routes for producing carbon nanotubes, for example, but it is not immediately apparent by conducting patent searches. However, CNI has licensed nanotube patents from Rice University. (Richard Smalley is both a Rice faculty member and founder of CNI.)

· The number of US patents already granted relating to carbon nanotubes is considerable, but the number of patent applications received by US PTO from 2001-2004 is far greater – suggesting that there could be increased activity in the nanotube patent area in the immediate years ahead. US PTO patent applications do not always reveal patent assignees - so it is impossible to predict which companies/institutions are most actively seeking patents in this area, or by whom the patents, if granted, will be controlled.

[LBE note: the article does not discuss the more than 700 US patents on fullerenes.]

An August 16, 2005 report that has been posted to the patent office web site, the, said that the examiner "stated that although he has not yet considered the written arguments presented regarding these issues... he suspected that in the view of the arguments presented in the interviews, the rejections of record would not be maintained."

The comments are not, themselves, a ruling. The examiner could reverse course after looking at written comments or find new reasons to reject Microsoft's patents. However the software maker was nonetheless pleased.

"The latest statement from the USPTO is promising, especially since the reexamination process is coming closer to completion," Microsoft director of intellectual property licensing David Kaefer said in a statement to News.com.

Should the USPTO save investors from bad decisions?

An article (U.S. PATENT REFORM AND THE FUTURE OF NANOTECHNOLOGY) by Steven R. Ludwig, et al. in Legal Backgrounder (Vol. 20, No. 37; Aug. 12, 2005) suggests that one function of the USPTO is to protect investors: "Poor patents may induce unwarranted investment in product development."

This is not unrelated to arguments made in Bob Park's WN concerning the BlackLight patent. If, as Park suggests, the patent on the hydrino concerns non-existent scientific pathways, then there is zero probability that anyone could infringe the claims. To date, no one has been accused of infringement. However, Park's concern is that the imprimatur of a patent on illusory technology could be used to dupe investors. This sounds like the "unwarranted investment" of Ludwig.

Although the USPTO certainly should not be granting patent claims on non-enabled technologies, the primary responsibility for evaluating technology, at least in a free market economy, should be on the entrepreneur, not on the government.

Similar thoughts apply to arguments that the USPTO should evaluate the innovative potential of inventions. The job of the USPTO is to obtain disclosure of inventions which meet the requirements of the patent law (e.g., useful, novel, non-obvious, enabled) in return for a limited period of right to exclude. Making the invention commercially successful is the job of the businessman, not the government. Some of the arguments involved in the patent reform debate are for a greater role of government in economic decisions. These arguments should be firmly rejected. Other arguments are for the US to be more like Europe or Japan in the way patents are granted. Maybe a review of which patent system has produced the greatest technological change in the last hundred years ought to be undertaken. Emulating Europe will not soon become an ad campaign like "Be like Mike."

Recall the saga of powered flight. Langley got big dollars from the government to work on an idea that ultimately proved worthless. The Wright Brothers got no money from the government. The Wrights' idea worked. Ironically, Curtiss et al. tried to resurrect the Langley work as "prior art" to defeat the Wright Brothers' patent, although adding features not present in the Langley work. Curtiss failed.

Other text from the Ludwig article:

The future is bright for nanotechnology. The effects that patent reform will have on nanotech companies will differ significantly depending upon the size and business strategy of the company. However, ultimately, it is difficult to argue that patent reform seeking to improve patent quality and decrease litigation costs should not be enacted.

In comment, the first effort at "reform" should be to give the USPTO enough resources to do its job. Fee diversion, created by the same Congress now seeking reform, must end immediately. Once the USPTO is adequately funded, one should see if there is a patent "quality" problem. Adding another level of product inspection, in the form of opposition, is premature when insufficent resources have been allocated to perform examination in the first place.

Further, in light of the inaccuracy of many of the investor reports on nanotechnology (note especially those on fullerenes), written by people getting far more money than examiners at the PTO, why do commentators like Ludwig hold PTO people up to one standard, but implicitly assume that investors are smart enough to wade through the morass of so-called research reports on nanotechnology? Poorly researched business articles may induce unwarranted investment in product development. If one wants to hold the PTO to a high standard, give the PTO enough money to do the job.

Saturday, August 27, 2005

Bob Park on the false publication from Columbia University

Bob Park noted of the false publication from Columbia University:

Under pressure from the Dean, the lead author, Dr. Rogerio Lobo, has removed his name from the study. Another author, a notorious scam artist, is in jail on separate fraud charges. The University has never retracted or apologized for the study, but has now told the journal to remove all links to Columbia. Maybe an intelligent eraser could help.

[The WN article began: The prayers aren't working. Bruce Flamm, MD, Clinical Professor at the U. of California, Irvine Medical Center, is the reason (WN 4 Jun 04). A 2001 study from Columbia University Medical School, published in a respected, peer-reviewed journal, reported in-vitro fertilization was twice as likely to result in pregnancy if patients were prayed for without their knowledge by total strangers halfway around the world. WN gently explained that they must be crazy http://bobpark.physics.umd.edu/WN01/wn100501.htm. Bruce Flamm dug deeper, publishing his findings in Sci. Rev. Alt. Med. In four years he has not let up.](From What's New, 26 Aug. 2005)

Separately, one notes that neither Professor Lemley nor Professor Moore, nor the Boston University Law Review, have corrected the false statement about the article of Robert Clarke, which false statement was used to justify reliance on the Quillen/Webster patent grant rate numbers instead of the numbers proprosed by Robert Clarke.

Specifically, Mark Lemley and Kimberly Moore, in footnote 22 of an article in the Boston University Law Review [Ending Abuse of Patent Continuations, 84 B. U. L. Rev. 63 (2004)], asserted that Clarke was guilty of "erroneously assuming that every continuation resulted in a patent and concluding that the grant rate was 75%." Because of this assertion, Lemley and Moore concluded "The 85% number provided in the revised Quillen et al. study is based on actual data about the applications that issue based on continuations, and reflects the best estimate we have of how often applications mature into patents." [sic: ????]

As pointed several times and self-evident to anyone who has read the Clarke paper [U.S. Continuity Law and its Impact on the Comparative Patenting Rates of the U.S., Japan, and European Patent Office, 85 J. Pat. & Trademark Off. Soc'y [JPTOS] 335(2003)], Clarke made no assumption anywhere in his paper that "every continuation resulted in a patent" and, as such, the footnote is incorrect and not properly cite-checked. Yet, as with the Lobo paper, no retraction by the journal [BULR] ever appeared. Unlike with the Lobo paper, the authors themselves took no action to correct the flagrant error.

Separately, of the supposed validity of Lemley and Moore's "best estimate we have of how often applications mature into patents", note the post athttp://www.groupsrv.com/science/viewtopic.php?p=994784#994784:

Quillen and Webster concluded that once continuation, continuation in part, and divisional applications are accounted for as renewed attempts to protect the subject matter of their applications, ***the USPTO eventually issued patents on between 85 percent and 97 percent of applications filed between 1993 and 1998*** . . . ***20 to 30 percent higher than official estimates***.

The counting scheme generating these numbers is ridiculous. For example, a divisional is a splitting up of an application that should have been two applications. (For some definition of "should").

This counting scheme allows adding allowed applications to the numerator of the ratio without incrementing the denominator by counting what may be completely independent attempts to patent separate inventions as the same application. The silliness is particularly evident when more than one divisional is allowed generating a percentage of over 100% for that particular attempt.

A google search using "Quillen" "Webster" "patents" turned up a law journal article by Lawrence Ebert which examined Q+W's study and points out the same counting error I describe here and alleges some additional problems with the study.

The same search turned up other critques citing the formula used and indicating that rates of greater than 100 per cent could be obtained using Q+Ws method.

Apparently none of those issues prevents lots of people from citing the study to prove all kinds of stuff. Maybe those people are correct. Maybe even the PTOs calculated allowance rate is too high, but this study proves nothing.

**Maybe Lemley and Moore's "best estimate we have of how often applications mature into patents" is simply rubbish.

Thursday, August 25, 2005

Judge Posner's provocative book review

**The conventional news media are embattled. Attacked by both left and right in book after book, rocked by scandals, challenged by upstart bloggers, they have become a focus of controversy and concern. Their audience is in decline, their credibility with the public in shreds. In a recent poll conducted by the Annenberg Public Policy Center, 65 percent of the respondents thought that most news organizations, if they discover they've made a mistake, try to ignore it or cover it up, and 79 percent opined that a media company would hesitate to carry negative stories about a corporation from which it received substantial advertising revenues.

**

Just like in the patent reform discussion (H.R. 2795), we have mention of a decline in quality:

**At this point the diagnosis splits along political lines. Liberals,including most journalists (because most journalists are liberals), believe that the decline of the formerly dominant ''mainstream'' media has caused a deterioration in quality.

(...)

The news media have also become more sensational, more prone to scandal and possibly less accurate. But note the tension between sensationalism and polarization: the trial of Michael Jackson got tremendous coverage, displacing a lot of political coverage, but it had no political valence.

(...)

Being profit-driven, the media respond to the actual demands of their audience rather than to the idealized ''thirst for knowledge'' demand posited by public intellectuals and deans of journalism schools. They serve up what the consumer wants, and the more intense the competitive pressure, the better they do it.

(...)

Challenging areas of social consensus, however dumb or even vicious the consensus, is largely off limits for the media, becauseit wins no friends among the general public. The mainstream media do not kick sacred cows like religion and patriotism.

Not that the media lie about the news they report; in fact, they have strong incentives not to lie.

(...)

The limited consumer interest in the truth is the key to understanding why both left and right can plausibly denounce the same media for being biased in favor of the other. Journalists are writing to meet a consumer demand that is not a demand for uncomfortable truths.

(...)Journalists minimize offense, preserve an aura of objectivity and cater to the popular taste for conflict and contests by -- in the name of ''balance'' -- reporting both sides of an issue, even when there aren't two sides. [LBE note: recall Bob Park's discussion of reporting of science in Voodoo Science. CBS presented scientists who appeared to endorse the Mississippi perpetual motion machine.]

(...)This means that corrections in blogs are also disseminated virtually instantaneously, whereas when a member of the mainstream media catches a mistake, it may take weeks to communicate a retraction to the public. This is true not only of newspaper retractions -- usually printed inconspicuously and inany event rarely read, because readers have forgotten the article being corrected -- but also of network television news. It took CBS so long to acknowledge Dan Rather's mistake because there are so many people involved in the production and supervision of a program like ''60 Minutes II'' who have to be consulted. [LBE note: hmm, why, in the face of criticism, were denials made by CBS well before the "facts" used by CBS were re-evaluated?]

**The above-noted review received responses from Keller, Moyers, and Alterman.

Moving from the "press media" to the law review media, I wonder why there are so many inaccuracies in law reviews that are not corrected. For example, although Lemley and Moore in the Boston University Law Review falsely stated that Clarke assumed every continuation led to a patent (Clarke said no such thing), there has not been any correction by the authors or by the law review. In the absence of this (false) statement, Lemley and Moore offered nothing to distinguish Quillen/Webster from Clarke, yet Lemley and Moore still cite to the Quillen/Webster numbers. Also, the erroneous 97% patent grant rate number of the first Quillen and Webster paper is still cited in law reviews, which is something like citing the fraudulent work of Jan-Hendrik Schon in 2005. Perhaps some of the issues mentioned by Judge Posner as to the press extend to law reviews.

Issue of continuations in patent reform proposal, H.R. 2795

In the article "Time for Reform? Software companies are leading the call for changes in the patent system," by Brenda Sandburg which appeared in The Recorder, August 9, 2005 Tuesday SECTION: NEWS; Pg. I20 Vol. 129 No. 153, there is the text:

Smith's draft bill [H.R. 2795] would make it more difficult to file "continuation" applications, which build on an initial application for the same invention. At the Senate hearing, Jon Dudas, director of the U.S. Patent and Trademark Office, advocated placing restrictions on these applications. He said that more than a third of the 355,000 applications filed with the PTO in 2004 were continuation applications, which he called a "form of rework."

To evaluate this, go back to the second Quillen and Webster paper, discussing the data of Allison and Lemley on 1000 granted patents:

"Using the Allison and Lemley data, we identified 297 patents (of the 1000) that had been granted on continuing applications (i.e., continuations, continuations-in-part, or divisionals) and determined that the USPTO had granted patents on 92 of their parent applications (31%). We also determined that 141 patents had been granted on continuation applications, and that patents had been granted on 19 of the 141 parent applications (13% of the 141, 6.4% of the 297)."

Only 141 patents of the 1000 were granted on continuation applications.

As I noted in Kent-J. Intell. Prop. in 2005:

One might also infer that there were 156 patents (297-141) which were divisionals and continuations-in-part. The probability of a parent patent on a continuation, 13% (=19/141), is significantly lower than a parent patent on a divisional/cip, 47% (=73/156).

It is likely that the text quoted by Sandburg of "more than a third" refers to continuing applications, not continuation applications.

Continuation applications are less than 1/2 of continuing applications, and are far less likely to result in granted patents than are divisionals. Further, divisional applications arise from restriction requirements imposed upon patent applicants by the PTO, and are thus "re-work" created by the PTO, not by patent applicants.

***UPDATE***

The actual number was supposed to be 26%, and, no, it was not just continuations. The 26% number (likely closer to 28% this year) is continuations, RCEs, and CPAs, but does NOT include divs and cips. Will try to have numbers for divs and cips later.

See also "Lord Save Us from Patent Reform," athttp://www.corante.com/copyfight/archives/2005/08/24/lord_save_us_from_patent_reform.php

See also "Ex-Microsoft CTO claims patent 'problem' is myth," athttp://news.zdnet.com/2100-9588_22-5842261.html?tag=zdfd.newsfeed

**Nathan Myhrvold, now the chief executive of a start-up company that exists to create and license inventions, told a conference in Aspen on Aug. 23 that "before you get worked up about this gigantic problem, you ought to see what the facts are."

Patent litigation represents only 3 percent of federal lawsuits and there has been a steady decline in the number of lawsuits filed per patent, Myhrvold said. "Almost everything you have heard about patent litigation statistics is not true," he said. "Patents are the least litigious part of intellectual property law."

**One of the comments to the Myhrvold post is the following:

I'm not sure that this proves anything, but at least it is a data point in an argument otherwise devoid of them:

In the late '70s Honeywell patented an autofucus [sic: autofocus] IC. The patent was so broad it covered essentially any IC that could do the trick. A few years later, Minolta produced the first commercially successful autofocus camera. Honeywell sued Minolta for infringing their patent. Minolta claimed they had developed their AF IC independently. 10 years later, Honeywell finally won all appeals. The total that Minolta had to pay Honeywell was nearly a billion dollars. Today Minolta is no more. There is no sign that Honeywell ever made the slightest move to manufacture either an AF IC or a camera. Tell me how that benefits me.

Anyone can spout ideas. Developing an idea into a product, and then producing and distributing that product, is where the real work is. The patent laws as they exist today provide cover for predators like Honeywell.

**As a comment, the purpose of the patent system is TO PROMOTE DISCLOSURE of inventions that meet the statutory requirements. Inventions are more than ideas or concepts; they have to be described and enabled (and not anticipated or obvious). It's up to businessmen (not the government) to negotiate deals involving the rights conveyed by patents.

**Separately, in all the discussion of patent reform, one does not see many in Congress talking about problems created by fee diversion. Simply put, if you want to fix problems at the PTO, don't take their money away with fee diversion.

Even the Australians get it:

I think most of us who have dealt with patents would agree with many who have already sounded off on the issue that first and foremost increased funding and more targeted and trained staff at the US Patent and Trademark Office would be a solid first step.

The Patent Reform Act of 2005, a sweeping set of proposed changes to U.S. patent law, aims to improve patent quality, reduce litigation costs and assimilate America with the rest of the world.

A provision that could accomplish all three is called post-grant opposition.

This provision has received a mostly favorable reception in the patent world, according to Dr. John Wetherell, a professor of patent law at the University of California, San Diego and a partner with Pillsbury Winthrop Shaw Pittman LLP. [QUERY: What about the statements of Hosteny, Quillen, and Ebert?]

"The idea is examiners are human," he said. "They make mistakes and there are variations from examiner to examiner. It would allow the elimination of weak patents that create a commercial barrier but, if they went to court, they wouldn't hold up."

"It will have the effect of providing a mechanism for the elimination of patents that clearly should not have been issued," he said, adding, "Re-examination is not nearly as effective for challenging the validity of a patent as post-grant opposition will be."

While post-grant opposition is less expensive and time-consuming than taking a case to court, Hangartner doesn't think the new provision will cause an explosion of challenges.

"The potential for abuse of this process is relatively low," he said.

Post-grant opposition, however, could serve to deter so-called "patent trolls," a term given to companies or individuals who acquire a portfolio of patents with the sole intent of using them for litigation.

With no intention of using their patents for a commercially viable product, these trolls instead look for people who are infringing on their patents and use the patent as leverage to win settlements.

"The patent is a blunt instrument ... a big old stick you can whack people with," Hangartner said. "With the cost of defending against it so high, it often makes no sense for the alleged infringer to fight.

"To the extent the Reform Act makes it less expensive to defend an infringement claim, it will work against patent trolls."

IP attorney James Cleary, a principal with San Diego's Fish & Richardson PC, said some companies have turned patent trolling into an art form, making a handsome profit.

Not all patent trolls are motivated by money, however.

Several small-time inventors can collect a series of patents for the purpose of creating a new product, and the proposed changes could hurt them as well.

It's created some strange bedfellows, with venture capitalist and small inventors aligning in support of strong patent protection.

"There's a group of small inventors who need access to the courts," Hangartner said. "They want to preserve the ability to sue for infringement and not be overwhelmed by a wealthy opponent."

The bill, which is constantly being tweaked by legislators as they prepare for a vote either late this year or in 2006, also contains a provision redefining prior art.

Prior art is technology that exists at the time of the invention. Currently, it must be either something in a patent, in a printed publication, in public use or on sale.

The new statute seeks to narrow the "public use or on sale" provision to require it be publicly known, meaning it's reasonably and effectively accessible through it's use, sale or disclosure by other means.

"Simply having something on sale or in public use ... it began to get vague, especially when you talk about software," Cleary said. "You want prior art to be something that the public has a reasonable way to access."

He said the bill might encourage the disclosure of technology, so it can be protected as prior art.

"It eliminates secret prior art," KMOB's Martens said. "Amazingly, in our present system there is prior art that the public really doesn't know about and has no way of knowing about."

Martens said it could prevent someone from expending lots of money on an invention only to have that invention ruled invalid because it infringes on prior art he or she didn't know about.

"The definition of prior art is critically important in almost all patent cases," Sheppard Mullin's Hangartner said.

Prior art could still be difficult to define in the software industry, Wetherell said, "because unlike biotech, there's not a lot of written prior art. People just (experiment) and come up with a new software program."

-->More on patent trolls-->

from IP Strategy:

Patent trolls The rising tide of patent litigation in the financial industry is not only a function of the new IP economy and the value and power of patents, but is also a function of what some target companies have referred to as patent trolls - companies or individuals whose primary business model is the licensing and litigation of patent assets, and who assert patents without regard to validity, solely for multimillion-dollar cost-of-litigation settlements.

As with all fundamental shifts in the economy, including the new IP economy, there are always problems lurking that need to be managed. Patent trolls are one such problem. The emergence of patent trolls in the financial industry is fostered by patents that issue with broad claims and by the willingness of companies to enter into cost-of-litigation settlements to avoid the risks of a jury trial even when the defence is strong. In some cases, the issued patents appear to cover business methods, products, or services already in widespread use in the financial industry. With the lack of an historical database of prior art publications, or access to product research and development activities in the industry to fully investigate the validity of such applications, the USPTO unknowingly allows such broad claims to issue.

A growing problem The cost-of-litigation approach to resolving patent troll litigations in any industry, including the financial industry, has the benefit of avoiding the short-term risk but at the expense of a longer-term and much more costly problem: a feeding frenzy that results from becoming known as an easy target. Such cost-of-litigation settlements have created a win-win business model for a small army of contingency-fee law firms, individuals, and companies known as patent trolls: weak case, they make their legal fees back and possibly a small profit; strong case, the sky's the limit. This encourages more litigation, not less. Indeed, in the past decade the number of patent suits filed each year has increased from hundreds of suits filed each year to thousands today, with more than 3,000 patent suits filed in the past year, many in the Eastern District of Texas.

The driving force behind this surge in patent litigation is gold fever caused by early success stories (see the examples provided below), and the win-win business model created by a willingness to engage in cost-of-litigation settlements. The high cost of patent litigation has made cost-of-litigation settlements lucrative for patent trolls, even when odds of success are low. The average cost of patent litigation in the US through discovery and trial is in the range of $5 million, which makes settlement amounts below that number, in the hundreds of thousands or even million of dollars, attractive to many large companies facing a damages claim in the tens, or even hundreds, of millions of dollars.

The right response The hard-line approach While each case is different, experience has shown that, in most cases, the recommended approach is to be branded the difficult defendant, not an easy target. The fall-and-crawl approach advocated by some lawyers is not a solution; it is part of the problem because it brands a company an easy target. The best approach is to take a hard line against patent trolls when the defence is strong.

The situation is reminiscent of the days in the school yard when students were tormented by the class bully whose natural advantage was the fear his words instilled in the students' minds. The inaction on the part of the students created a win-win environment for the bully, making the problem worse, not better. It was a vicious cycle with no end in sight until one day some of the tormented students realized the short-term solution of laying low, hiding, and avoiding conflict made matters worse. Recognizing that appeasing the bully did not work, some of the students decided to take a stand and fight the bully, and when they won they realized that the bully was not as tough as they thought. The bullied students also realized that their own fears had paralyzed them from taking action. An amazing thing happened once the bully was confronted and beaten, the tormenting stopped. The problem was solved.

Guiding principles Success with the hard line approach rests on three principles. First, one must understand that patent trolls threaten industries and not just individual defendants and that lawyers with strong people skills are essential for convincing competitors to support a strong defence, including with access to prior art and other resources. In many instances, the prior art is in the hands of competitors who may not be named in the suit. Such competitors need to recognize that they are next on the hit list unless the defence succeeds.

Second, it is imperative that defence counsel seize control of the case at the outset, by investing up front in preparing the case to win. These trolling cases thrive in part because cost and other pressures leave counsel ill-prepared and unable to demonstrate they can take the case the distance to trial and win, which plays right into the hands of a patent troll. Preparing up front allows the lawyers to see the proverbial forest from the trees, and to take appropriate steps to resolve the matter as quickly as possible, including by summary judgment. Additionally, it ensures that the client is not left exposed by the actions of co-defendants should a trial become necessary. Indeed, it is a common strategy for plaintiff's counsel to remove the lead defendants with more favourable settlements just short of trial, allowing them to gouge the remaining defendants who are unprepared to try the case.

Third, and equally important, is the recognition that even with a more aggressive, take-control strategy, litigation costs can and should be managed through an emphasis on informal discovery, rather than the overbroad and less effective formal discovery, stone-walling, bulldog tactics, and repeated motion practice that is in widespread use.

Recent litigation examples The following are representative examples of the kinds of major patent litigations hitting the financial industry.

Online broker dealers In September 2003, a tiny Montana software company called Datamize sued the online broker dealer industry for alleged patent infringement in the Eastern District of Texas, located in Marshall, Texas, a small rural town near the Louisiana border. The defendants were Charles Schwab, CyberTrader, Terra Nova Trading, Fidelity, E*Trade, Scottrade, and Interactive Brokers. In the suit, Datamize alleged that internet and PC-based trading platforms used by the defendants infringed several Datamize patents that were alleged to cover the ability to customize and personalize the content and layout of a user interface screen. At the outset, Datamize demanded tens of millions of dollars from each of these companies.

Datamize sued the financial industry first - with other web-related companies in its sights for the next round or phase of litigation, including such companies as Yahoo!, eBay, Oracle, Peoplesoft, Gateway, Hewlett Packard, Citrix, and others - based on a perception that banks and other financial services institutions are willing targets for cost-of-litigation settlements - unhardened by a heavy docket of patent litigations, with deep pockets, and a high transaction volume with which to attach a royalty. Sophisticated plaintiffs take advantage of the fact that proving a patent invalid in court is a challenge for any defendant, especially an inexperienced defendant, for at least two fundamental reasons. First, invalidity defences are often focused on prior art products discontinued long ago, with records that were lost or destroyed in the ordinary course of the company's business, fading memories, and witnesses who no longer work for the company, and, in some cases, a company that no longer exists. Second, the defendant must prove the patent invalid by the heavy burden of clear and convincing evidence to a jury untrained in the law or technology, compounding the challenge. In contrast, a plaintiff patent owner need only prove infringement by a preponderance of the evidence - the scales need only tip ever so slightly in its favour.

Knowing how to build an invalidity case that can carry the day at trial is critical not only to success at trial, if necessary, but more importantly in convincing one's opponent and/or the court to dismiss the case without a trial, and without the multimillion-dollar cost-of-litigation settlements that serve as incentives to watchful patent trolls.

In the Datamize case, employing the hard-line approach, defence counsel located prior art trading platforms that were for sale and in public use before the February 1996 filing date of the Datamize patents. With the help of antique computer parts dealers who supplied the hardware necessary to resurrect and run the prior art software, and the good fortune of finding knowledgeable witnesses to prove the patents invalid, a clear and convincing case of invalidity was built. To remove all doubt, the case was presented to several mock jury panels from the Marshall, Texas area. Each panel agreed with defence counsel the patents were invalid - debunking the generally held perception that a patent cannot be invalidated before a Texas jury - and, not surprisingly, the case was dismissed following the filing of summary judgment motions.

The hard-line approach worked. There will be no next round or phase of litigation against other web-based companies.

The Datamize defendants benefited greatly from another recent Texas trial victory for Universal Instruments, a Dover company, that established loud and clear for Datamize that its patents could be invalidated by a Texas jury. In the Universal Instruments case, all 17 claims of the asserted software patent were found invalid in a three-week jury trial. In an earlier case against Motorola, involving the same plaintiffs and the same patent, Motorola chose to make the multimillion-dollar cost-of-litigation settlement - paving way for the next round of litigation against Universal Instruments. Universal Instruments, on the other hand, was tired of such settlement payments and frustrated by the encouragement it provided to others. They chose the hard-line approach and prevailed. Final judgment was recently entered officially ending the case. There will be no next round or phase of litigation against other companies in the electronics industry.

Banks Another notable group of cases in the financial industry are the DataTreasury cases pending against banks and payment processors in the Eastern District of Texas, in Marshall, Texas.

DataTreasury is a small payment processor in Melville, New York, whose only business, other than one client, appears to be licensing and litigation of patent assets. DataTreasury has sued numerous banks and cheque processing companies, among them JP Morgan Chase, First Data Corporation, Ingenico, and Electronic Data Systems.

In the complaint, Datamize alleges that these companies have infringed two patents that it contends are directed to the capture, storage, and retrieval of cheque images. A new cheque processing law that took effect in October 2004 gives banks broader freedom to exchange digital images of cheques rather than the original paper cheques, and so more and more banks are beginning to implement image settlement systems. Press accounts indicate DataTreasury seeks a 50% royalty or 3.2 cents per electronic document imaging and storage. According to a recent press release by DataTreasury, Judge Folsom recently granted DataTreasury the full scope of patent protection it advocated at a Markman hearing held earlier in the year - a hearing during which each side was given an opportunity to argue what they believe is the proper scope to be afforded the patent claims. The DataTreasury cases continue.

Futures brokers Trading Technologies, a Chicago-based provider of trading software for the futures industry, has sued several futures traders in the Northern District of Illinois, including Refco and Man Financial, among others, and the four largest futures exchanges, including the Chicago Board of Trade, Chicago Mercantile Exchange, Eurex, and Euronet.

Trading Technologies has asserted infringement of two patents directed to its MD Trader system - an order entry screen that displays multiple prices so that users can view market depth in their trading decisions. In an open letter to the futures industry, Trading Technologies has demanded 2.5 cents per trade as a royalty fee from the big four futures exchanges or it threatens to litigate against anyone who infringes its patents, which it claims is half the futures industry, for which it will charge 10 cents per trade. The Trading Technologies cases also continue.

The gold fever The following are examples of success stories that have created the gold fever that is driving the new IP economy, patent trolls, and the resulting increase in patent litigation.

IBM In the 1990s, IBM implemented fundamental changes in its IP management and infrastructure that took it to the top of the patent charts for both number of US patents granted and royalties received, boosting licensing revenue from $30 million a year in the early 1990s to $1 billion a year by the year 2000, a 3,300% increase, with annual royalties now approaching $2 billion.

Dell Dell Corporation is a classic example of aligning IP strategy with business strategy. Dell's formula for success is not selling computers with better technology than its competitors, but rather is attributable to the business methods and related software it uses to interact with its customers, including a build-to-order direct sales model, so-called have it your way computers, and top-notch 24-hour service and support. To maintain its high profit margins from competitive attack, Dell has patented, and continues to patent, every novel aspect of the way it does business, lest it become a free research and development laboratory for its competition.

Lemelson Foundation Jerome Lemelson received more than $1.5 billion in royalties from a thousand companies for their use of bar code scanners and machine vision equipment in product inspection, product identification, and inventory management.

Ronald Katz Licensing Katz claims that his patents cover a wide range of interactive technologies used in corporate call centers. He has earned more than $1 billion in total licensing fees, and expects that number to rise to $2 billion in the coming years.

Optical Recording Corporation John Adamson founded Optical Recording Corporation (ORC), a small Canadian company, for the purpose of developing memory cards using optical storage technology from Battelle Laboratories. With the Battelle technology, Adamson acquired patents that are fundamental to the way digital audio is recorded and played from a CD. More than 40 disc and player manufacturers were licensed by ORC worldwide, with royalties approaching $100 million, including a $30 million jury trial victory against Time Warner in Delaware federal court.

Ampex Corporation After losing money in recent years from its core business of providing digital image storage systems to film studios and digital broadcasters, a decision was made to improve the long ignored management of its IP. A review of the company's existing patents uncovered a patent that some might call a Rembrandt in the attic. Ampex contends that this patent covers the way digital images are displayed in digital cameras, camcorders, and camera phones. In 2004, Ampex launched a licensing programme targeted at the who's who of consumer electronics giants. So far, Asian companies have cut licensing deals worth $77 million, more than Ampex's 2003 revenue from product sales. In 2004, revenues from licensing helped Apex turn a profit of $47.1 million on revenues of $101.5 million. In the past year, its stock price has responded by jumping from $1 to $40.

Forgent Networks Five years ago, video networking company Vtel, now known as Forgent Networks, was on the wrong end of a shrinking market for videoconferencing equipment when a decision was made to focus on IP management. After reviewing its patent portfolio, the company uncovered several purported Rembrandts in the attic. One of the patents is alleged to cover the JPEG compression standard for the capture, storage, and exchange of digital pictures. This standard is widely used in consumer electronics and in the exchange of digital images over the internet. Forgent claims that its technology is used in digital cameras and other devices to compress, store, manipulate, print and transmit digital images. To date, the Forgent patent licensing programme has generated more than $100 million from dozens of companies. It now claims to have a patent that it says underlies the digital-recorder technology behind TiVo.

Conclusion To thrive in the new IP economy it is essential that institutions in the financial industry put in place a culture of innovation and build proper IP infrastructure employing best practices in IP management. It also is essential such companies plan for patent litigation and act proactively to minimize the occurrence and risk of such litigation. To discourage further patent troll growth within the financial industry, a hard line is the right approach.

Tuesday, August 23, 2005

CAFC gives MEMC chance on inducement

The CAFC reversed the ND Ca on an issue of inducement of infringement in MEMC v. Mitsubishi.

Although the CAFC did not accept the indemnity argument of MEMC (citing Hewlett-Packard, 909 F2d 1464), the CAFC noted the accused inducer had knowledge of MEMC's patent, furnished technical support to the ultimate customer, sent accused products directly to someone in the US, and made technical presentations in the US. The CAFC cited to MGM v. Grokster, a copyright case.

Monday, August 22, 2005

The district court's determination of patent invalidity under 102(b) was reversed because of an error about priority date.

The patent in question was US 6,076,094.

The inventor initially disclosed the invention in a series of 3 Australian patent applications, later consolidated in one PCT application (AU/93/00607).

The district court based invalidity on the absence of a reference to the PCT on the face of the '094 patent.

The CAFC noted that where proper reference to a national stage application exists, no reference to the corresponding PCT is required. The '094 patent did reference other US patents in the patent family, the '595 and the '934. The '595 was the national stage application of the PCT. The '934 was a continuation, and the '094 was a divisional thereof.

Aquatex v. Techniche: citing Phillips v. AWH on prosecution history

In Aquatex v. Techniche, the CAFC upheld a district court claim construction but reversed on a doctrine of equivalents/estoppel issue. The reasoning on the claim construction issue was a bit weak.

An issue was the meaning of "fiberfill batting material." The district court construed it to encompass only synthetic materials. The accused product contained a mixture of natural and synthetic. The patentee incorporated by reference the texts of several US patents, all of which discussed only synthetic materials. The CAFC declined to give the prosecution history much weight, citing to Phillips. Dictionaries defined fiberfill as purely synthetic; however, one chemical dictionary gave an example of natural products as fiberfill. The CAFC cited Nazomi, 403 F3d 1364, for the proposition that limitations from the specification must not be read into the claims, but affirmed the district court on the "synthetic" point.

Sunday, August 21, 2005

boston.com on Lemelson

Boston.com gives some details in the case later known as the Symbol case, in which the Lemelson Foundation lost because of laches defense.

-->Three weeks after Cognex filed suit, Hosier, an accomplished pilot, flew one his private jets to New York City, for a meeting at the Fish & Neave law firm.

Inside the skyscraper, the parties gathered in a narrow conference room overlooking the city. Hosier, who came to the meeting with one of his lawyers, sat at the long table with his back to the window.

This was the first time Hosier had laid eyes on the garrulous Shillman, an ebullient man, prone to jumping, fidgeting and gesticulating when illustrating points. His excitability masks a deep intelligence -- he earned his doctorate in machine vision and artificial intelligence from MIT.

Hosier, on the other hand, is staid and very fit from his time spent skiing on the slopes near his Aspen mountaintop home. He is deliberate. His words are calculated and delivered carefully. He's a lawyer's lawyer.

"A brilliant but evil genius," according to Shillman.

The meeting turned confrontational almost immediately. Voices were raised and expletives detonated.

Hosier was perplexed.

Why was Cognex suing the Nevada-based, for-profit foundation that was created in 1993 to license Lemelson's patents? He had never gone after Cognex, only its clients. The companies that made the technology were not worth suing -- their revenues too small. The companies that wielded it, however, had much deeper pockets.

If Cognex lost the case, he could bankrupt it. Cognex had more to lose than gain by taking on the Lemelson partnership.

"Nobody rational would have made the decision," Hosier said. "I think the man is certifiably insane."

Shillman explained his demands. Hosier had to stop asking for royalties from its customers, and put $30 million in escrow so Cognex could protect itself against liability claims that its clients were threatening.

Nobody gave Hosier ultimatums. It was like the mouse taunting the cat.

Hosier's face reddened. Later, he would say he considered reaching across the table, grabbing Shillman by the throat and telling him, "We're going to destroy you."

Instead of throttling Shillman, Hosier walked out.

In March 2000, U.S. District Judge Philip Pro in Las Vegas consolidated the Cognex lawsuit with one filed by Symbol Technologies and six other manufacturers of bar code technology, another putative Lemelson invention that had inspired many lawsuits.

The high stakes court battle to decide Lemelson's legacy would be played out not far from the gambling casinos of Las Vegas.

Hosier said it wasn't about the money. He was protecting Lemelson's name.

Cognex said it was fighting for something else.

"Everybody felt pressure," said Bill Silver, Cognex's chief of technology. "Everybody wanted to win. (Lemelson's) legacy was on the line, and Cognex's very existence was on the line."

There would be no jury. The decision was left in the hands of Judge Pro.

The trial came down to the numbing testimony of 20 witnesses, more than 1 million legal documents and a staggering 1,300 exhibits. Over 27 days, the two sides hammered each other.

More than a year would pass before Pro issued his decision, and when he did, it sent shock waves throughout the patent world.

Lemelson -- and the for-profit partnership that carried on his business -- lost. Resoundingly.

The court found that 14 critical patent claims by Lemelson were unenforceable under a rare defense called prosecution laches -- an unreasonable delay or negligence in pursuing a right.

The judge also said the claims were invalid for lack of a written description, and a person of ordinary skill could not build the inventions using Lemelson's patents as his own experts had asserted. He added that "Symbol and Cognex products do not work like anything disclosed and claimed by Lemelson."

The companies did not demonstrate that Lemelson had "intentionally stalled" getting the patents, the judge ruled. But he did say that "decades of delay preceded the assertion of patent claims, and Lemelson has offered no adequate explanation for that delay."

Hosier was skiing in Canada when he received word he had lost. He couldn't believe it. He would later deride the judge's decision as superficial; the lawyers have since filed an appeal, and the 1st U.S Circuit Court of Appeals heard oral arguments this June.

"I think he basically said that this thing (the patent infringement claims) took too goddamn long and they made a lot of money on it," Hosier said.

For the family it was a wrenching loss. They received condolences from friends, one of whom said Lemelson must surely be turning over in his grave.

"He wasn't even around to defend himself," said his son, Rob.

But this was a great victory for Shillman. He had long since made Lemelson's defeat a personal crusade. When his alma mater, MIT, accepted a huge Lemelson gift to endow a professorship and a $500,000 award for inventors, he vowed he would never give the school another cent.

Now, he was ecstatic. He threw a party at his office in Massachusetts, and he sent out a flurry of e-mail messages, crowing about Lemelson's defeat.

One found its way to the inventor's family.

"Your worst nightmare has just come true!" Shillman wrote. "The gravy train has come to a full stop. And, it's only a matter of time before your victims (oh, excuse me, licensees) come after you.

Now, Canadian consulting firm Chipworks Inc. is hoping to make some money off Lemelson's unpopularity, tracking down "prior art" that could limit the scope of Lemelson's patents related to semiconductors. "We're trying to build a case that other people were doing the same thing," said Terry Ludlow, president of Chipworks (Ottawa).

But Gerald Hosier, the attorney representing the Lemelson Foundation in its patent fights, has his doubts, given the amount of money that's already gone into contesting Lemelson's inventions. "If there was prominent prior art, they would have found it," he said.

Moreover, the Lemelson story might be winding down. Ever since the Big Three automakers settled on the use of certain Lemelson patents last year, longtime holdouts have begun accepting Lemelson's licensing terms at the rate of one company per business day, Hosier said.

As death approached, he believed his place in history had been secured, thanks to his most spectacular inventions: machine vision and the bar code scanner, technology that has dramatically altered the way in which we live.

They claim Lemelson's patents were in fact worthless. Lemelson, they say, was one of the great frauds of the 20th century.

Critics charge that for decades Lemelson manipulated the U.S. Patent Office. They accuse him of exploiting loopholes that forced 979 companies — including Ford, Dell, Boeing, General Electric, Mitsubishi and Motorola — to pay $1.5 billion in licensing fees.

"Anything he claims to have invented, he didn't. He's a science fiction writer," said Robert Shillman, founder, chairman and chief executive at Cognex Corp., the world's largest maker of machine vision products and one of Lemelson's most truculent opponents.

-->'It's still very early in the process,' said Mr John Ferrell, co-founder of Carr & Ferrell LLP and a leading Silicon Valley patent attorney.

'Apple still has a lot of options. This is not like a Supreme Court decision.'

Apple could file a declaration that it invented the technology before Microsoft filed its patent request.

The evidence is all the iPods already on the market at the time.

In such cases, a company can ask the patent office to investigate and determine the inventor.Please note that, in a response to the PTO rejection, Apple already did file a declaration swearing behind the date of filing of the Microsoft patent application. Nothing was said about this, and the 102(e) rejection was restated.

siRNA used against SARS

A team led by Patrick Y. Lu of Intradigm Corp. in Rockville, Md., said in the online edition of the journal Nature Medicine that researchers in China and the United States tested two types of siRNA that target different parts of the genome of the SARS virus.

GC/MS breath test to detect organ rejection, disease

Following several years of clinical trials funded by federal grants, the Heartsbreath test of Menssana was approved in 2004 by the Food and Drug Administration to be used along with biopsies to determine if a donor heart is being rejected. If rejection is detected, anti-rejection drugs can be adjusted.

In addition, Michael Phillips, CEO of Menssana, said that his technology can determine the levels of each compound, being about a billion times more sensitive than police breathalyzer machines.

By taking samples from thousands of ill people, "We've identified a number of compounds that are the 'fingerprint' of a disease," Phillips said.

Because illnesses produce high amounts of free radicals, which oxidize cell membranes and release certain compounds, each disease has a unique "fingerprint," he said.

Part of Phillips' contribution has been developing the computer software to extract the fingerprint from a mass of data provided by two standard pieces of lab equipment that analyze the breath samples: a gas chromatograph and mass spectrometer.

The samples reveal a lot about an individual, said Renee Cataneo, a Menssana research associate. "I can tell if they were drinking the night before, or if they're hungry," she said. An empty stomach, it seems, gives higher readings of acetone.

A headline in the Chicago Tribune, "Motorola curbs chase for patents," suggests a backoff, but the text may suggest something else. Specifically, it looks like a previous business decision created a bottleneck with too few patent lawyers, and now more attorneys were hired, and the rate-limiting step has been modified.

Note also the relatively modest incentives for techies to write patent disclosures.

-->from the Tribune-->

But when it comes to one measure of innovation, patents for inventions, Motorola has lost ground. The Schaumburg technology giant was regularly among the top 10 recipients of U.S. patents during the 1990s, yet it slipped to 30th in 2004, according to U.S. Patent Office data.

The reason lies in a round of cost cutting and a change in Motorola's patenting strategy, executives say.***The article discusses cost issues:

In the early 1990s, Motorola had a stated goal "to get as many patents as we could get," said Jonathan Meyer, Motorola's senior vice president for intellectual property law.

Then, about five years ago [ie, circa 2000], the company revamped its patent strategy, he said. The initial focus was simple: "What can we do to cut costs?"

Patents don't come cheap. An invention with global sales potential must be patented in the U.S. and several other countries, and costs about $200,000 to file and maintain over its multiyear life, Meyer said.

***Patent lawyer shortage; return to former conditions?

Still, a couple of years into the new patent regime, patent proposals began backing up internally, Backof said.

Motorola researchers make their patent pitches to a committee of co-workers, all experts in the same field. Normally, there's a two- to three-month backlog from the time a pitch clears a committee and the time a company lawyer files a patent application.

But that backlog grew beyond a year because Motorola didn't have enough lawyers, Backof said. Researchers began to grumble. Plus, Motorola made itself vulnerable to competitors beating them to the patent office.

The company hired more lawyers to fix the problem in 2002 [ie, only 2 years after the changed strategy], Backof said. That loosening of the spigot should lead to higher Motorola patent counts in the next few years, executives say. Up to four years can elapse between when a patent is filed and when it is granted. [Hmmm, the limiting strategy was only in place for two years.]

***Internal rewards for patents at Motorola

Patents are a key motivator for Motorola's researchers. For years, "Motorola has had a very good system for people to create patents," said James Conley, a professor of technological innovation and industrial engineering management at Northwestern University.

Motorola rewards inventors with status and money. Inventors get $150 for proposing a patent-able idea, $1,500 for a patent filing and $750 for a patent grant because most filings are granted.

Researchers with 10 to 24 patents can be spotted at Motorola's sprawling suburban Chicago campus because their employee badges are gold. Inventors with at least 25 wear platinum-tinted badges.

Wearers of gold badges have earned a $10,000 bonus while those in platinum received $25,000.

More than 100 Motorola workers wear gold while over 50 don the platinum. They are a select group: Motorola has about 24,000 engineers spread across the world, including about 1,200 in "advanced technology" research, where the company's patents are primarily germinated.

***Outsourcing; offshoring

About two-thirds of those advanced techies are in the U.S. But as Motorola's markets have gotten more global, so has its research efforts. The company has research and development operations in 18 countries besides the United States, with a particularly large presence in China and India.

If Motorola or another company decided to outsource research, that could be a dangerous strategy.

"It's a slippery slope," said Jim Andrew, a senior vice president and technology specialist in Chicago with The Boston Consulting Group. Once a company starts farming out core research, it risks eroding its ability to generate new ideas and thus, new products.

Saturday, August 20, 2005

J&J/Ethicon gets patent on predicting whether wound is infected

Researchers at drugs giant Johnson & Johnson's Edinburgh branch Ethicon have come up with a 'dipstick' test that looks for the early signs of bacterial infection.

The technique measures the levels of biological molecules associated with an immune response by the body to bacteria in a wound.

By measuring the presence of these molecules, doctors can tell if the wound is likely to become infected.

Doctors will be able to take a swab of a patient's wound after surgery before putting the dipstick into a tube of reactants.

If the chemicals then change colour it means the wound is in the early stages of infection and doctors can combat the bacteria before it gets a foothold.

Breda Cullen, who invented the method, claims that it would also reduce the need to use antibiotics to fight superbugs such as MRSA by stopping them before they cause an infection.

[text from news.scotsman.com]

***The GB patent discussed in the Scotsman is presumably related to US published application 20050079542 (10/494507; PCT /GB02/05023)

Claim 1 recites:

A method of predicting or diagnosing clinical infection of a wound comprising measuring the concentration of a marker associated with an inflammatory response in wound fluid, wherein the marker is a fibronectin fragment, a neutrophil protease or a macrophage protease.

The text includes:

[0003] Infection of wounds by bacteria delays the healing process, since bacteria compete for nutrients and oxygen with macrophages and fibroblasts, whose activity are essential for the healing of the wound. Infection results when bacteria achieve dominance over the systemic and local factors of host resistance. Infection is therefore a manifestation of a disturbed host/bacteria equilibrium in favour of the invading bacteria. This elicits a systemic septic response, and also inhibits the multiple processes involved in wound healing. Lastly, infection can result in a prolonged inflammatory phase and thus slow healing, or may cause further necrosis of the wound. The granulation phase of the healing process will begin only after the infection has subsided.

[0004] The persistent presence of bacteria in injured tissue results in the prolonged elevation of proinflammatory cytokines such as interleukin-1 and tumour necrosis factor alpha (TNF-.alpha.). This in turn causes increases in the levels of matrix metalloproteinases, a decreased level of tissue inhibitors to the metalloproteinases (TIMP), and a decreased production of growth factors.

[0009] It has been discovered that wound fluid from wounds that are apparently not clinically infected but which go on to become infected within a few days have high levels of neutrophil elastase activity and may also have high levels of other inflammatory proteases, such macrophage proteases and other neutrophil proteases. Similarly, the concentration of fibronectin fragments may also provide a useful indication of the likelihood of subsequent clinical infection; the presence of such fragments in chronic wounds being mainly due to high levels of elastase activity.

[0010] According to the present invention, there is provided a method of predicting or diagnosing clinical infection of a wound comprising measuring the concentration of a marker associated with an inflammatory response in wound fluid, wherein the marker is a fibronectin fragment, a neutrophil protease or a macrophage protease.

According to Editor and Publisher, in what must be a first, the editor of The New York Times (Bill Keller) has written a letter to the editor (to appear Aug. 21) ripping a recent book review in his own paper (by Judge Richard Posner of the 7th Circuit Court of Appeals).

According to E&P:

Keller calls the Posner essay “mostly a regurgitation, as tendentious and cynical as the worst of the books he consumed.”

He charges that Posner “weirdly” makes almost no distinction “within the vast category of American media, between those that are aggressively partisan and those that strive to keep opinion sequestered from news, between outlets that invest in serious reporting and those that simply riff on the reporting of others, between the sensational and the more high-minded, between organizations that hasten to correct errors and those that could not care less, between the cartoonish shout shows on cable TV and the more ambitious journalism of, say, the paper you are holding in your hands. [LBE note: As noted elsewhere by me, the New York Times itself does not always "hasten" to correct errors. Similarly, to this day, the Harvard Law Review never corrected its mistake that the PTO grants patents on 97% of applications. The Boston University Law Review never corrected the mistake that Clarke assumed every continuation leads to a patent. One could go on and on. One wonders who Keller has in mind on organizations that hasten to correct errors.]

Posner the polemicist is sadly consistent with Posner the federal appeals court judge, who has been notably hostile to the idea that the First Amendment affords journalists special protections. … [Hmm, which news organization recently caved on the First Amendment? Wasn't it the New York Times?]

“The saddest thing is that Judge Posner's market determinism leaves no room for the other dynamics I've witnessed in my 35 years in newspapers: the idealism of reporters who think they can make the world better, the intellectual satisfaction of puzzling through a complicated issue, the competitive gratification of being first to discover a buried story, the pride in striving to uphold a professional code of fair play, the quest for peer recognition and, yes, the feedback from attentive and thoughtful readers. [Hmm, what about Jayson?] He makes no allowance for the possibility that conscientious reporters and editors are capable of setting aside their personal beliefs or standing up to their advertisers (and the prejudices of their readers) to do work they believe in.”

**Others, including liberals Bill Moyers and Eric Alterman, join Keller in protesting the review of several recent books on the media.

The incident over iPod involving Microsoft and Apple may become a "poster child" in the discussion between "first to invent" and "first inventor to file." Lurking behind the iPod incident is what's going on in nanotechnology as to foods, nanofoods.

from foodnavigator:

Food companies have joined with gusto the legal race to win monopoly control of discoveries in nanotechnology that could help them market novel new products, according to a Spanish research firm.

However smaller food companies and developing countries risk being muscled out of the market by larger food processors who have the money to pay for the research and an army of lawyers to keep control of the technology through intellectual property rights, the ETC Group said in a global report on nanotechnology patents.

In an interview with FoodProductionDaily.com, ETC researcher Hope Shand said the patent survey indicated that food companies are patenting nano-scale products and processes like other sectors.

The trend is likely to accelerate. Since the research is still in its infancy legal battles could still be part of the industry's future.

"Virtually anytime you read a company's news release touting a new innovation in nano-scale food technology -- you can bet there's at least one patent already issued or applied for," she said. "That's business as usual. It's too early to predict whether or not we'll see licensing wars related to applications of nano-scale technologies in food. The food industry giants such as Kraft and Nestle, are not likely to have a problem with barriers involving exclusive monopoly patents. They have the economic muscle and lawyers to acquire a competing start-up, if necessary, or to patent around a new innovation."

In its report on nanotech patent applications ETC found that the world's largest transnationals, leading academic labs and nanotech start-ups are allracing to win monopoly control of tiny tech's colossal market.

(...)Ironically for the food industry the largest single holder of nanotech patents in the world is a Chinese researcher, Yang Mengjun. He has 900 patents on ancient Chinese medicinal herbs, by claiming to reduce them to nano-scale formulations.

Similar patents are being granted in the US and Europe. For example, the Pacific Corporation (Korea) has won a European patent on nanoscale ginseng for use in cosmetic products. The Pacific Corporation claims that an emulsion of ginseng at the nano-scale allows it to penetrate the skin, exerting an antiaging effect.

"Patent claims on nano-scale formulations of traditional herbal plants are providing insidious pathways to monopolize traditional resources and knowledge – one more reason why the Convention on Biological Diversity and FAO should address the implications of nanotechnology," ETC stated.

The "real deal" on Microsoft's 20030221541?

An article entitled "The real deal on Microsoft's playlist patent" sadly makes serious mistakes about the status of the Platt application of Microsoft. As earlier noted on IPBiz, the Platt application has received a notice of allowability and a notice of allowance. The Platt application is not a "patent," but it soon will be.

At one point in the Forbes.com article, the Platt application is referred to as a "patent," but later the article states "is expected to be approved by year's end."Neither statement is correct.

The USPTO rejected the Apple patent application as anticipated under 35 USC 102(e) over the Microsoft Platt application. In this, all disclosure in the Platt application is available for consideration. The issue is not limited to what Microsoft might, or might not, contemplate to commercialize.

from Lisa DiCarlo, Forbes.com via vnunet.com:

In truth, the patents [i.e., the patent applications of Apple and Microsoft] in question might not even be directly related.

"Some people say patents are overlapping, and I'm not sure that's accurate," says Kaefer. "The characterization of the patent is not spot on."

Indeed, news articles suggested that Microsoft's patent surrounds the iconic iPod clickwheel. But its patent has to do more with the organization and delivery of digital media items.

Microsoft's patent has been winding its way through the system and is expected to be approved by year's end. [Note: the Platt application received a notice of allowance in June 2005, and will issue well before the end of 2005] A Microsoft spokesperson couldn't say whether the technology has yet worked its way into any Microsoft products. Presumably, these would be music, spoken word or even video that use the Windows Media Player.

The Forbes article also notes:

Microsoft is close to patenting a technology that, for all intents and purposes, makes a Tivo out of your digital media player.

The technology in question, patent application number 20030221541, was filed in May of 2002 and "relates generally to systems and methodologies that facilitate generation of playlists," according to a summary of the invention patent. "It reduces effort and time required to generate a playlist that meets or is similar to desired characteristics or features by automatically generating a playlist."

In other words, the technology can create autogenerated playlists of various types of media based on usage patterns, with no intervention from the user. So if 1970s funk music is your thing, a portable MP3 player would generate such playlists on your behalf.

About Me

I'm a patent lawyer located in central New Jersey. I have a J.D. from the University of Chicago and a Ph.D. from Stanford University, where I studied graphite intercalation compounds at the Center for Materials Research. I worked at Exxon Corporate Research in areas ranging from engine deposits through coal and petroleum to fullerenes. An article that I wrote in The Trademark Reporter, 1994, 84, 379-407 on color trademarks was cited by Supreme Court in Qualitex v. Jacobson, 514 US 159 (1995) and the methodology was adopted
in the Capri case in N.D. Ill. An article that I wrote on DNA profiling was cited by the Colorado Supreme Court (Shreck case) and a Florida appellate court (Brim case). I was interviewed by NHK-TV about the Jan-Hendrik Schon affair. I am developing ipABC, an entity that combines rigorous IP analytics with study of business models, to optimize utilization of intellectual property. I can be reached at C8AsF5 at yahoo.com.